I sat down with the head of a FTSE-100 company last week. The conversation was all off the record. It's the kind of meet and greet journalists get to enjoy every once in a while. It's a chance for both sides to set the other straight on their view of the world, and work out where there are differences and why.
There was a notable absence of concern about the business outlook, but an insightful analysis of the risks. The CEO argued any executive claiming clarity of vision on the next 12 months is misguided or abnormally gifted with second sight. Be suspicious, ran the view, about both negative and positive forecasts, because in well-run companies the volume of business has not yet slowed.
Playing devil's advocate, perhaps the problem is that present conditions are not a good forecaster of future conditions. Equities look cheap on a relative bond comparison given the level of profits, and that should give pause for thought. Markets are supposed discount future cash flows, so that is what they're doing, right?
Robin Griffiths argued Monday morning the Dow has now technically signaled a bear market, with the transports and the index pointing to further downside.
Stock market historian David Schwartz supplied a note contending the bull market of 2003 to 2007 is over and UK shares are due a thumping based on analysis of past bull runs.
Sean Corrigan from Diaposan Commodities Management was on the show once again Monday making the case that a credit crisis will become a real economy slowdown. Sean then went on to call gold at least another fifty dollars higher.
Strategists are now tying themselves in knots trying to discriminate between the markets coupled/de-coupled/re-coupled to the Anglo-Saxon economies.
Consensus view is now that the markets that have the lowest correlation to the US markets are the places to invest. The profit cycle for the Anglo-Saxon economies is done and run, says the logic.
Back to our CEO, apart from believing that his global earnings will continue to grow, he thinks everyone is too obsessed with the here and now. Think forward two years and work backwards from there, he suggests. Will anyone be consuming less, driving less, buying slower technology, accepting a lower standard of living?
It's unlikely -- definitely not from choice anyhow. So what exactly are equities discounting?
That leaves us with uncertainty and fear, and the increasingly negative calls of the financial community.
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